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Man that predicted Great Recession dead aged 90

Posted by Warm Southern Breeze on Tuesday, October 9, 2012

Jay Levy, Part of ‘Dynasty’ That Forecast 2008 Crash, Dies at 90

Jay Levy, who worked with his father, then his son, to publish an economics-forecasting newsletter, now in its seventh decade, that predicted the collapse in housing and latest recession, has died. He was 90.

He died on Oct. 4 at Northern Westchester Hospital in Mount Kisco, New York, according to his son, David. The cause was pneumonia. A resident of Somers, New York, he had suffered a series of mini-strokes in recent years.

The Levy Forecast, founded in 1949 as Industry Forecast, bills itself as the oldest paid newsletter devoted to economic analysis in the U.S. It is published by the Mount Kisco-based Jerome Levy Forecasting Center LLC, of which Levy was most recently senior counsel and managing director. The center carries the name of his father, Jerome, who died in 1967. Jay Levy’s son, David Levy, is chairman. They were part of what Forbes magazine, in 1983, called “a kind of economic dynasty.”

Levy and his son were “right as rain” in predicting the financial crisis and recession that began in 2007-2008, Alan Abelson wrote in Barron’s in January 2009.

Among the red flags they had raised was this from the November 2005 Levy Forecast:

“Just as the last recession was caused by the bursting stock market bubble, the next recession will be caused by the deflating housing bubble. This time, however, the financial sector will be much more exposed.”

Abelson wrote of the Levys: “Father and son, they’ve been at this game a lot of years, and while not infallible (a quality restricted to popes and financial journalists), they have a truly extraordinary record of being right.”

So sure were the Levys that the next recession would push interest rates to near zero that they formed a hedge fund in 2004 to bet on options and interest-rate futures, David Levy said. Though the bet was a bit early, David Levy said yesterday in an interview that he remembers his father “being extremely confident in what we were doing.” The investors in what was called the Levy Forecast Fund scored a 500 percent return over five years before it was shut in 2009, David Levy said.

Jay Levy’s bullish forecasts in the postwar years helped drive his younger brother, Leon, to bet big on the growth of mutual funds as a partner at Oppenheimer & Co., where he founded OppenheimerFunds Inc. in 1960.

Odyssey Partners, a hedge fund started in 1982 by Leon Levy and his Oppenheimer colleague, Jack Nash, likewise relied on Levy forecasts. It capitalized “on major cyclical bond plays based entirely on Jay’s and his son David’s forecasts,” according to the forecasting center’s website.

‘Simple Equation’

The Levys’ work relies on the so-called profits perspective, which considers changes in corporate profitability to be an overlooked, underutilized piece of economics.

“It’s a simple equation based on common sense,” Levy told the New York Times for a 1988 article. “We all know that large profits persuade businesses to expand and that skimpy profits lead business to retrench. Yet almost all other economists overlook profits in forecasting, while we believe that by focusing on total business profits you get the most accurate forecast possible, since profits are what motivate most of the production in a private-enterprise economy.”

In addition to their newsletter, Levy and his son worked as consultants to corporations and financial institutions.

They co-wrote “Profits and the Future of American Society” (1983). Forbes magazine called the book “brilliant” for showing “why squeezing business profits for the alleged benefit of the poor or of the working man is a self-defeating exercise. It leads not to the satisfaction of human needs but to inflation and unemployment.”

‘Anticipating Changes’

Describing his work, Levy told the Times:

“Uncertainty about the economy complicates executive decisions and leads to expensive mistakes — it reduces difficult choices to the toss of a coin. Our company is based on our belief that every executive and money manager can benefit from a reliable forecast. The ways business can profit by anticipating changes in the economic climate are limitless and sometimes astonishing.”

S Jay Levy — S was his first name — was born on May 31, 1922, in New York City, the son of Jerome Levy and the former Sadie Samuelson. He had polio as a child and walked with a limp his whole life until using a wheelchair in the last several years, his son said.

Jerome Levy, a merchant and amateur economist who sold much of his stock before the crash of 1929, introduced Levy to the notion that corporate profits could foretell economic trends.

City College

Levy immersed himself in the profits-based approach in the 1930s and began making economic predictions. He graduated from City College of New York in 1942.

With his father, he began Levy Economic Forecasts, published monthly, in 1949 in Manhattan. They moved the company about 40 miles north to Chappaqua, New York, in 1956 to gain greater distance from and perspective on Wall Street, Levy told the Times in 1988.

Over the last several years, the newsletter has been supplied only to the firm’s consulting clients.

Levy was a member of Barron’s investor roundtable in the 1970s and 1980s. In 1991, he turned over primary responsibility for forecasting to his son.

His wife of 63 years, the former Barbara Henly, died in March. Survivors include their children, Ann, David and Joshua.

To contact the reporter on this story: Laurence Arnold in Washington at larnold4@bloomberg.net

To contact the editor responsible for this story: Charles W. Stevens at cstevens@bloomberg.net